The Promise of Privacy

The Promise of Privacy Respecting consumers limits while realizing the marketing benefits of Big Data in association with:

Contents Foreword...2 Key Insights...3 Methodology... 5 Insight One: Most Companies Are Actively Pursuing Data-Driven Business Strategies... 6 Q&A: How Zappos.com Stays in Touch With Customers...7 Insight Two: Sellers Tend to Overestimate Their Customers Privacy Anxiety... 8 Q&A: LinkedIn How Privacy Can Differ When Dealing With Members Instead of Customers... 9 Insight Three: Sellers Believe Customers Are Willing Partners in the Exchange and They re Probably Right...10 Q&A: How Engineering Data Improves Product Performance and Customer Relationships at NetApp...12 An Advertising Industry Association s Take on Privacy...13 Insight Four: The Risk and Cost of Potential Privacy Missteps Cannot Be Overstated...14 Insight Five: Seller and Customer Perceptions of Where and How Actions Are Being Observed Differ Significantly...16 Insight Six: Companies Are Working Hard to Track Their Efforts and Most Say Their Data Programs Are Paying Off...18 Conclusion...20

FOREWoRD Technology-infused data collection and analysis can provide benefits to both marketers and consumers. But fail to understand and respect privacy and risk all. For the second year in a row, Turn and Forbes Insights have partnered to survey consumers and marketers on their perceptions on a topic of significant relevance to the advertising industry. This year, the focus was on privacy and how it is viewed and valued by both marketing executives and consumers. The study reveals that, while a small subset of consumers care a lot about privacy, what most are concerned with is security. This significant insight reveals a strong alignment with marketers concerns they understand that a security breach can have a huge negative impact on consumer trust and can tarnish their brand. Turn is proud to offer marketing solutions that address both privacy and security. We provide market-leading performance and ROI to marketers using only anonymous identifiers for consumers. Turn takes its responsibility to our marketer and agency customers seriously. Equally important is our commitment to transparency and choice for consumers. As the survey demonstrates, this is a market solution everyone can agree on. Turn delivers exceptional digital marketing results and insights to marketing leaders around the world through a privacy-compliant, integrated software platform purpose-built for audience discovery, cross channel media execution, and advanced analytics. Max Ochoa Chief Privacy Officer, Turn 2 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

KEY INSIGHTS MOST COMPANIES ARE ACTIVELY PURSUING DATA-DRIVEN BUSINESS STRATEGIES Customer data-driven business strategies are becoming the norm. Three out of five business executives sellers say they are active in collecting, analyzing and acting upon customer data. Deeper analysis shows that the ranks of active participants are poised for continued expansion. For example, 42% say they not only are taking significant steps to gather and analyze customer data today, but are likely to do so considerably more in the future. SELLERS TEND TO OVERESTIMATE THEIR CUSTOMERS PRIVACY ANXIETY Eighty-one percent of sellers believe that their customers are either concerned or highly concerned regarding privacy. But the reality is that executives may be vastly overstating the degree of actual customer angst. In a separate survey of general consumers (B2C), only 47% say they worry about privacy. As for business-purchasing decision makers B2B buyers the numbers are even more overstated. SELLERS BELIEVE CUSTOMERS ARE WILLING PARTNERS IN THE EXCHANGE AND THEY RE PROBABLY RIGHT Sixty-nine percent of sellers believe that their B2C and B2B customers are happy to share information if they perceive value from the exchange. And customers seem to agree: 53% of B2C customers and 45% of B2B customers say they are generally willing to share information when they perceive a benefit. But businesses sellers benefit most, and all sides seem to recognize it. Thirty-six percent of sellers recognize that the lion s share of benefits flow to their own income statements and balance sheets. Another 18% say all benefit from the exchange, but mostly themselves. Customers seem to agree. Three out of five B2C consumers also say it s the seller who benefits most from the sharing of information. Nonetheless, the survey shows that consumers notice key benefits, and remain content with the exchange even if the balance of value favors business. THE RISK AND COST OF POTENTIAL PRIVACY MISSTEPS CANNOT BE OVERSTATED Customers are calm about privacy issues for now. But sellers know that all it takes is one misstep to lose that goodwill. Eighty-five percent of sellers agree 63% strongly that any significant breaches in customer data security would do great harm to customer relationships, reputation and the bottom line. And the larger the company, the greater the value of its intangibles (that is, its brands) and therefore the greater value at risk. continued on page 4 Copyright 2013 Forbes Insights 3

KEY INSIGHTS continued from page 3 SELLER AND CUSTOMER PERCEPTIONS OF WHERE AND HOW ACTIONS ARE BEING OBSERVED DIFFER SIGNIFICANTLY Comparing the percentage of companies who say they are actually observing specific customer interactions to the perceptions of B2C and B2B customers how often they feel they are being observed shows significant disconnects. More than half of sellers say they actively observe that is, seek to obtain discrete customer data from in-person interactions. But both B2C (47% and B2B (29%) customers underestimate the degree of observation. When it comes to website visits, however, B2C and B2B customers overestimate the frequency with which their actions are being actively observed. The question for sellers is whether there is a need to do a better job of disclosing when, where and how they are tracking customers. COMPANIES ARE WORKING HARD TO TRACK THEIR EFFORTS AND MOST SAY THEIR DATA PROGRAMS ARE PAYING OFF About four out of five executives, 81%, say their efforts are meeting or exceeding ROI targets. How do they know? Fifty-five percent are actively tracking related metrics with 19% indicating such analysis is very rigorous. Companies say they are most successful in using data collection and analysis to assist with product development, pricing, website design and function, and call center operation. These efforts are also paying off in terms of more-optimized marketing spending as well as product and service pricing. 4 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

METHODOLOGY The insights and commentary found in this report are the result of a research process combining surveys with qualitative interviews. In September 2013, partnering with Turn, a provider of data-driven marketing services, Forbes Insights executed three related yet distinct surveys: one for business-to-consumer (B2C) customers, one for business-to-business (B2B) customers, and the primary or main survey for executives from sellers to both of these segments. THE SURVEYS Main or sellers survey: Number of participants: 129 Executive title: Director of marketing (29%); president, principal or owner (19%); EVP, SVP or VP of marketing (19%); unspecified C-level (19%); chief marketing officer (13%) Type of company: B2C (39%), B2B (38%), unspecified combination of B2B and B2C (23%) Revenue: $10 billion or more (23%), $5 billion $9.9 billion (14%), $1 billion $4.9 billion (29%), $500 million $999.9 million (22%), less than $500 million (11%) Industries: Manufacturing (17%), banking, financial services (16%), life sciences and healthcare (11%), retail (10%) B2C survey: Number of participants: 106 Age: 18-30 Gen Y (18%), 31-49 Gen X (21%), 50-68 Boomer (30%), 69 or older Elder (31%) Gender: Female (51%), male (49%) Income: $150,000 or more (38%), $100,000 $149,999 (14%), $50,000 $99,999 (17%), $25,000 $49,999 (13%), under $25,000 (18%) B2B survey: Number of participants: 115 Executive title: VP or director (28%), manager (23%), head of department (17%), head of business unit (6%), CIO (6%), CFO (4%), CEO (3%) Revenue: $10 billion or more (4%), $5 billion $9.9 billion (7%), $1 billion $4.9 billion (37%), $500 million $999.9 million (27%), less than $500 million (24%) Industries: Manufacturing (18%), life sciences and healthcare (15%), technology (10%), banking and financial services (8%), professional services (6%), transportation (5%) INTERVIEWS To review and illustrate the survey findings, Forbes Insights conducted a series of formal and informal interviews with 12 senior executives from various businesses, consulting firms and industry associations. Attributed or on the record remarks appear from: Jim Baer, senior director, data science, LinkedIn Rich Clifton, EVP, customer success operations, NetApp Patrick Dolan, EVP and COO, Interactive Advertising Bureau Trevor Hughes, president and CEO, International Association of Privacy Professionals Don Peppers, co-founder, Peppers & Rogers Group Ronn Shaw, web analytics manager, Zappos Copyright 2013 Forbes Insights 5

INSIGHT ONE MOST COMPANIES ARE ACTIVELY PURSUING DATA-DRIVEN BUSINESS STRATEGIES There was a time when companies knew all of their customers intimately. But that, says Don Peppers, co-founder of Peppers & Rogers Group, was back when most businesses were sole proprietorships. Owners dealt with most of their customers on a first-name basis. As businesses and society grew, such intimacy diminished. Ironically, says Rogers, in today s information age, companies can again collect and analyze data taking them back to that old-style level of intimacy on a massive scale. Indeed, technology-enabled business strategies driven by customer data are becoming the norm. Nearly three out of five sellers say they are active in collecting, analyzing and acting upon customer data. Deeper analysis shows that the ranks of active participants are poised for considerable growth. For example, 42% say they not only are taking significant steps to gather and analyze customer data today, but are likely to do so considerably more in the future. Another 23% consider themselves middle of the road, a group that gathers customer data and performs some analysis, but not much. Only 18% are inactive, but of these, a mere 6% say such strategies are inapplicable or perhaps inappropriate for their industry or its customers. At the other extreme, 17% describe themselves as very active. This contingent says they are generating significant business benefits from capturing, analyzing and acting upon customer data a group that we will refer to as the very active or the vanguard where appropriate (Fig. 1). Surprisingly, the size of company appears to have little bearing on the degree of focus on customer data. Since datadriven strategies tend to benefit from scale so-called big data it would stand to reason that the larger the company, the more likely it would be to pursue such strategies. But the survey instead shows nothing so clear-cut. Instead, it finds that: Smaller companies (under $1 billion) are: More likely than average to be very active (23% vs. 17%) Much less likely than average to be merely active (23% vs. 42%) Twice as likely as average to be inactive by choice (12% vs. 6%) Larger companies (over $10 billion) are: Only slightly more likely to be very active (20% vs. 17% a statistically insignificant difference) Much more likely to be merely active (57% vs. 42%) None inactive by choice Behavior does vary by size of company, but the influence is neither intuitive nor linear. Put simply, the degree to which companies are pursuing customer data driven strategies is independent of size. Figure 1. Which of the following best describes your orientation toward gathering and analyzing customer data? 23% 12% 6% 59% very active the vanguard and active and likely to do more middle of the road inactive so far inactive by choice 6 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

How Zappos.com stays in touch with customers Q&A with Ronn Shaw, web analytics manager Zappos.com is a large online provider of shoes and apparel. Why do you collect data? To improve performance and the customer experience. What sorts of data do you collect? From website visits, we look at what browser and device are making the request (for example, Safari on an ipad), and referral information, which could tell us whether this was a web search or if www.zappos.com was typed directly into the browser. We also look at activity-based metrics average number of page views or errors that help paint a picture of the quality of the site experience. As for mobile, we track a lot of the same information as above, but it is trickier with mobile. And then we make use of vendors like Compete or Hitwise to gain an idea of what is happening on competitor websites, and on the Internet, overall. We also partner with research institutions to provide information regarding widespread perception of our brand. What tools do you use to analyze this data? Our primary analytical tool is an internally developed application. It provides access to not only website data, but also financial and inventory data all in one common place, and is able to provide a unique, holistic view of our entire business. To perform more-complex analyses, such as customer segmentation or website pathing, we utilize several products from SAS. We are also exploring several data visualization solutions, such as Tableau or SAS Visual Analytics. In addition to the tools we use, there is tremendous value added by the way we look at the data we collect. For example, analyzing the site experience from the perspective of someone that is visiting you for the first time may paint a completely different picture than if it is from the viewpoint of a consistent shopper. This is highly relevant when we consider any primary metric like conversion rate or cart abandonment. In what ways are you able to improve the customer experience with this data? The data we collect and analyze goes a long way in determining how we treat visitors to the website. For example, is it better to send someone to a customized landing page or to an automatically generated set of search results when they search for their favorite brand? How about if they search for a general term like men s shoes? We conduct website tests that split traffic between different treatments and measure differences between those treatments, allowing the customer to tell us what gives them the best experience. A lot of our internal analytical efforts focus on identifying anything that could be preventing a visitor from achieving their goal, which in our case is predominantly a visitor finding a product they like. We look for any areas of the website where a visitor, or group of visitors, may be encountering difficulties. When we find something, it is presented to the appropriate teams so we can brainstorm ways to change the experience in hopes of improving it. From that, we will choose a set of candidates and design new experiences around the proposed changes and begin conducting usability tests to see how our customers might respond. Once we get to the point where we feel good about what has been designed and developed, we will expose it to a randomly selected percentage of website traffic. Based on the performance of the different experiences, again, we can let the customer tell us if our efforts actually led to an improved experience. What changes or improvements have you made in these areas as a result of data analysis? One area we have been working to improve is returns. Customers, today, can easily make exchanges by calling our customer loyalty teams. But we recently designed, launched and are in the process of testing a feature on the website that will allow customers to do their exchanges online. To what extent do you believe customers notice and appreciate such improvements? We typically launch feedback surveys when we implement new features, and we always receive comments. From this perspective, there are definitely customers that notice. On the other hand, I am sure there are at least as many customers, likely many, many more, that do not consciously assess the experience. But data analysis definitely results in better, more effective, customized experiences, tailored for different users with different needs or wants. For example, site experiences that recognize individuals from warmer climates as opposed to cooler climates and adapt to show them more relevant content will be the norm. Copyright 2013 Forbes Insights 7

INSIGHT TWO BUSINESS EXECUTIVES TEND TO OVERESTIMATE THEIR CUSTOMERS PRIVACY ANXIETY As sellers expand their use of customer data, they come in evercloser contact if not conflict with issues of privacy. Trevor Hughes is president and CEO of the International Association of Privacy Professionals, a not-for-profit focusing on related and fast-evolving legal, public policy and commercial issues and practices. According to Hughes, privacy is about managing data. Businesses want to extract maximum value from data, but they need to do so not only within the boundaries of the law, but also within the privacy tolerances of customers. Today, says Hughes, more companies are becoming more aware of the need to pay attention to these issues. The study reveals that companies are indeed thinking things over. For example, 81% of sellers believe their customers are either concerned or highly concerned about privacy. This figure rises to 92% among retailers where fully 77% believe their customers are highly concerned. Moreover, 64% of executives from all industries believe their customers would be even more uncomfortable if they understood how much was already known about them. But the reality is that executives may be vastly overstating the degree of actual customer angst. Only 47% of B2C customers say they are concerned or very concerned. As for B2B buyers, the numbers are even more greatly overstated (Fig. 2). Figure 2. How concerned are B2C consumers by privacy issues? B2C Sellers B2B buyers consumers Very concerned 48% 24% 11% Concerned 33% 23% 20% Total 81% 47% 31% All of this resonates with IAPP s Hughes. It doesn t surprise me that consumers are saying they re not worried, says the executive. Everything we ve seen tells us that generally, customers want to trust the companies they do business with. In fact, their starting posture is: I think you re legit, and you ll do the right things with my data. They re trusting. Sellers themselves are significantly more concerned about privacy issues than are their customers. Asked about their own commercial lives, 57% of executives from selling firms say they have privacy concerns, compared with only 47% of B2C consumers. This begs the question, do sellers know something their customers don t? A Distrust of the Rogue Individual Not the Company Even among those B2C customers who are concerned about privacy, the root cause may be less about a fear of monitoring and much more centered on worry that the wrong people might put information to the wrong use. Drilling deeper with those expressing privacy concerns, the top three most-cited fears are: Crime and the risk that criminals might access any collected information (84%) General dislike of having personal information and activity monitored (78%) Fear that an individual employee or the public could access and misuse personal info (73%) In short, many concerns over customer data driven business activities are to some degree less of a privacy issue and much more of a call for heightened data security. This is not to say that there is no distrust of business. Among B2C customers expressing concern over privacy, 59% cite a belief that companies will use the information to gain an advantage in the commercial relationship. And over one in five, 22%, cite a general distrust of business in general. Age also plays an enormous role in the various perceptions. For example, participants from Gen Y were twice as likely to express distrust of business in general as the sample at large. But at the same time, Gen Y participants were also significantly less likely to cite a general dislike of sharing personal information or being actively monitored. So the youngest B2C survey participants are more likely to not mind being watched even as they trust businesses much less. Sellers understand this; 71% of executives say they believe that the younger the customer, the greater the comfort level with sharing personal information. As for B2B customers, just 31% express concern over the knowledge that vendors might be keeping track of their activities. Indeed, 48% of B2B customers who don t worry about privacy believe the information they re sharing is not particularly sensitive, while one-third see an element of partnership in their supplier relationships, and 25% say they are taking similar actions with their own customers. 8 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

LinkedIn: Dealing with members instead of customers Q&A with Jim Baer, senior director, data science LinkedIn is the Internet s largest professional network. What sorts of information does LinkedIn collect about its customers? LinkedIn provides a platform for members to establish their professional identities and connect with others to advance their careers. In creating their professional profiles, members share their work histories, responsibilities, publications, patents, professional certifications whatever characterizes who they are. And that data is then used to present them with the most relevant opportunities. How do you determine what content to show to members? What members see is driven by algorithm. Algorithms analyze the data and then provide our suggestions on what members will likely find of interest. We also do a great deal of work to ensure the quality of our data, and we refine the information presented to members based on observed usage. The idea is to move the chaff out of the way and continually improve the relevance of our recommendations. Other social media sites sell targeted advertising. How does LinkedIn use its member data in association with advertisers? The defining characteristic of advertising on LinkedIn is that it is highly targeted. We work with advertisers whose products and services are closely aligned with the needs of our members. Because we know who our members are as professionals, we can show them ads that are actually relevant by enabling advertisers to target their messages with high precision. How sensitive do you feel your members are to issues of privacy? We take privacy and data security very seriously. We give members full control over their settings and which information is visible to others. And we have dedicated teams for data security. Copyright 2013 Forbes Insights 9

INSIGHT THREE SELLERS BELIEVE CUSTOMERS ARE WILLING PARTNERS IN THE EXCHANGE AND THEY RE PROBABLY RIGHT Sellers and their customers do generally agree on at least one key issue: there is value in sharing personal information. Both groups also agree that consumers should benefit in some way in exchange. Where disagreement arises is the degree to which either party benefits from information sharing. Specifically, 69% of sellers believe that their B2C and B2B customers are happy to share information if they perceive value from the exchange. This figure rises to 77% among the most active in the survey, the so-called vanguard. To a lesser extent, customers agree. Fifty-three percent of B2C customers and 45% of B2B customers say they are generally willing to share information when they perceive a benefit. Moreover, 55% agree that companies who are tracking my personal information owe me some form of commensurate benefit. Who benefits most? The IAPP s Hughes agrees that an exchange is occurring and that it is likely conscious. But where nuance arises is in the relative value. I can t take credit for it, says Hughes, but there s a line I find very useful. And it starts with Americans value privacy they absolutely do. But as for the price they expect in exchange, it s often 50 off on a cheeseburger. Figure 3. When companies collect, analyze and act upon information obtained from their dealings with you, who benefits most? Sellers B2C consumers B2B buyers The seller 36% @ 60% 32% All benefit but mostly the seller All benefit roughly equally Groups of customers Individual customers @ 46% among B2C-oriented sellers + Data points not comparable across surveys 18% + 13% 16% + 14% 19% + 18% 11% 2% 13% me our company The survey adds support to this view. Among sellers, 36% recognize that the lion s share of benefits flow to their own income statements and balance sheets. Another 18% say both sellers and customers benefit from the exchange, but mostly the seller (Fig. 3). The rest say all benefit equally (16%), or most of the benefits flow to groups of customers (19%) or individual customers (11%). By comparison, three out of five B2C consumers believe it s the seller who benefits most. Even they perceive the imbalance: in the information exchange, sellers benefit far more than customers. But does it matter to them? Customers notice benefits While the degree of value they re exchanging may be a source of contention, B2C customers indicate that they indeed do tend to notice a degree of benefit from the active or passive sharing of personal information. Benefits perceived include more relevant discounts and offers, personalized offers and the convenience of stored shipping information (Fig. 4). Figure 4. Benefits B2C customers notice More relevant discounts and offers Personalized offers Stored shipping information 54% Recognition as a valued customer 49% 62% Relevant product and service suggestions 49% More frequent and generous loyalty awards 43% 76% 10 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

Figure 5. How important are the following in terms of providing an incentive for you to share personal information? (Very Important-Moderately Important) Executives believe* B2C values B2B values Better products (to meet their needs) 66% 62% 87% Better services 64% 67% 88% Money 60% 87% 87% Time 57% 68% 86% Improved retail experience 53% 68% N/A Improved online experience 48% 71% 78% *Percentage of executives believing this form of value accrues to customers N/A (Survey did not ask B2B about retail experience) Sellers, meanwhile, believe their efforts lead to better products and better services, as well as money and time savings to their customers all of which both B2C and B2B customers value (Fig. 5). B2C customers are most likely to value money discounts, special offers and the like for their part in information sharing. B2B customers, meanwhile, tend to value better products, services, time or money savings equally. In summary, B2C and B2B customers want more price benefits requiring less time along with better overall channel experiences. As for their own rewards the spoils or motivations for pursuing customer data driven business strategies sellers say they value the achievement of greater customer loyalty (stickiness), greater marketing effectiveness and more optimal media spends (Fig. 6). Figure 6. Benefits for sellers Greater loyalty (stickiness) 36% More effective marketing strategies 33% More optimal media spends 33% Better predictive capabilities 25% Premium pricing or optimal pricing 24% More effective retail presentation 21% Higher barriers to entry 15% Better product and service concepts 15% Better product and service design and enhancement 15% Copyright 2013 Forbes Insights 11

How engineering data improves product performance and customer relationships at NetApp Q&A with Rich Clifton, EVP, customer success operations NetApp is a provider of storage and data management solutions with over $6 billion in revenue. What sorts of information do you collect and analyze relating to customers? We do that in quite a few ways. Probably most interesting for today is our automated data collection. This is where customers share performance and service level characteristics on the installations they have in place with us. It s essentially a way for us to gather information from the real world and in real-time that can be used to monitor and improve the degree to which our products meet the needs of specific customers. How does this work? Technology within our data storage and retrieval products enable us to capture information on the health of the hardware, the health of the software along with some related characteristics about how everything is working within its overall environment. This includes how the sophisticated pools of storage in the devices are getting along with other components at various capacities. Think of tracking the flows through the systems, and not just the health of the media (disks and flash). This data is automatically collected from our customers and goes into an extreme scale data warehouse. And from there, there we can do all kinds of useful things. Such as? For one thing, we can monitor and where needed, make adjustments to improve the reliability of a customer s installation. Our systems are specifically designed for high-level resiliency, for example, through patented approaches to layered redundancy. One of those layers could break and the customer would still be running fine. But now they re at a higher risk of failure. So by sharing this information, we re able not only to detect that sooner, but also find the root cause and improve the environment. What about product improvements? This sort of learning can absolutely go into improving our products, and it does a lot. But another aspect of the data sharing is the way this can lead to better predictions for our customers. Some of the more interesting analytics we use look at thousands of events such as various combinations of load, temperature of the system, health of specific hardware components, or how many systems are at one moment attempting to interact. Being able to look at such detailed information can help us move a customer from after-the-fact remediation to avoidance. Is this program mandatory? Not at all, it s opt-in. But that said, we have a very high penetration rate of customers who enable this capability. The point is, sharing information like this benefits our customers. Note, we re not ever looking at specific data that belongs to the customer. All we see is metadata information that relates to system performance and health only. In what other ways do you collect/analyze customer information? We also have programs for listening to customers, for example, surveys and councils. We also try to correlate our automated data with our sales data, creating context for conversations with customers about other products and configurations that could better meet their needs. Overall, the more we look at data, the better it is for our customers. 12 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

An advertising industry association s take on privacy Few organizations reside as squarely in the privacy crosshairs as the Interactive Advertising Bureau (IAB). The group acts as an industry association for more than 500 leading media and technology companies that are responsible for selling 86% of online advertising in the U.S. As anyone who has ever executed a web search for camping equipment on one day, only to experience a mysterious two-week deluge of backpack, tent and hiking boot banner ads, can appreciate, Privacy issues are at the heart of what we do, says EVP and COO Patrick Dolan. The IAB works to set technical standards, promote best practices and establish codes of conduct in areas such as personal privacy. But the group also seeks to influence public policy, educating legislators and regulators about the societal benefits of electronically rendered and closely targeted advertising. Overall, says Dolan, events such as the National Security Agency s snooping, and more recently the revelations that E-ZPasses are being read at far more locations than just tollbooths, make this a very interesting moment in the privacy debate. There is always a degree of tension between personal I believe many, maybe most, consumers and individuals are aware their behaviors are being observed by businesses. Patrick Dolan EVP and COO, Interactive Advertising Bureau (IAB) privacy and the realities of living in an era of massive data collection and analysis, says Dolan. And right now, privacy concerns are a little more elevated than usual, he continues. But overall, says Dolan, I believe many, maybe most, consumers and individuals are aware their behaviors are being observed by businesses. However, they ascribe little or no ill intent to the activity, or at the very least, says Dolan, not enough to cause consumers to want to withdraw from the economy at least not yet. But, says Dolan, things could change. It is very important to maintain a balance between the objectives of advertisers and the degree to which consumers are comfortable with datadriven strategies. In practice, says Dolan, companies need to find the optimal mix between creating tailored experiences and more relevant offers and content, and risking they might alienate their customers. Because IAB and its members are working with so much data, we know these tools work and they re beneficial to consumers. Still, says Dolan, companies have to be very respectful of privacy, be very open about what they re doing and not overstep their welcome. Copyright 2013 Forbes Insights 13

INSIGHT FOUR THE RISK AND COST OF POTENTIAL PRIVACY MISSTEPS CANNOT BE OVERSTATED As the saying goes, let sleeping dogs lie. For now, customer anxiety over potential privacy breaches is significantly lower than that perceived by sellers. But one of the likely reasons for this gulf is that sellers are actually more aware of just how much harm might befall customers should their privacy be breached. Patrick Dolan is the EVP and COO of the Interactive Advertising Bureau, an industry association that regularly deals with privacy issues. As Dolan explains, I believe that the companies gathering this [sort of customer data] realize the responsibility it entails, and the consequences for failing to live up to consumer trust. Indeed, 85% of executives in the main survey agree 63% strongly that any significant breaches in customer data security would do great harm to customer relationships, reputation and the bottom line. And the larger the company, the higher the percentage of those who strongly agree. The insight: the larger the company, the greater the value of its intangibles (that is, its brands) and therefore the greater the value that s at risk (Fig. 7). Figure 7. The larger the company, the greater the perceived risk Overall, 85% agree (22%) or agree strongly (63%) that privacy breaches are bad for relationships, reputations and the bottom line. But the larger the company, the more likely it is to agree strongly: Under $1 billion $1 billion $4.9 billion $5 billion $999.9 million $10 billion or more 49% 55% Overall, 63% strongly agree 78% 83% Figure 8. How do sellers view their privacy responsibilities? It is our responsibility to protect customer personal data 64% 86% It is our responsibility to protect customer financial data It is our responsibility to ensure that each individual customer understands how we collect and use their data We share a formal privacy policy with customers and other stakeholders 83% 84% Commensurately, 86% of sellers agree that it is their responsibility to protect customers personal data, a figure increasing to 100% among retailers. Eighty-three percent of sellers say it is their responsibility to protect customer financial data a figure increasing to 93% among retailers. As with any seller-customer interaction, communication is key. Fully 84% of sellers agree that it is their responsibility to ensure that each individual customer understands how the seller collects and uses their data. In accord, 64% already share a formal privacy policy with their customers and stakeholders and 10% more say they soon plan to. Even amid these warnings, indications are that some companies may not yet fully appreciate the degree of risk and thus their actual exposure. More than half of sellers (54%) say that they believe customers barks are worse than their bites. That is, customers express concern about privacy, but don t change how they act. Especially noteworthy, this figure rises to 63% among those who are most actively using customer data. This suggests that those most closely tracking customer reactions to data-driven actions are most likely to report that customers don t mind sharing data. Here, however, findings from the B2C and B2B customer surveys serve up cause for caution specifically: 14 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

B2C customers 54% of B2C customers say their privacy concerns outweigh any benefits derived from sharing information with businesses 56% of customers are generally uncomfortable with the amount of information companies know about them or could learn about them through their activities 47% are uncomfortable when they notice their personal information is being used to provide customized content or suggestions (for their benefit) B2B customers Fewer than a third (31%) of B2B customers say the benefits of sharing outweigh the privacy risks Half of B2B customers (50%) say privacy is a major concern when making purchases or selecting vendors The question becomes: just how sedate and loyal would customers remain following a privacy crisis? Executives have got to realize, says IAPP s Hughes, that if they step offside, if they get the privacy equation wrong, goodwill and trust evaporate. Sellers should consider listening in instances where customer actions indicate enough is enough. For example, the B2C survey asked participants how often and in what manner they took active steps to protect their online privacy. This includes actions such as declining to provide requested information or even aborting a transaction or registration owing to too many questions. The results show a spectrum of willingness to provide or avoid providing information (Fig, 9), all of which amplify the warning that even if customer actions demonstrate only minor concern over privacy, this indifference could quickly turn to ire in the event of any significant privacy transgressions. And as Hughes cautions, owing to the increasing instances where companies have access to personal data, companies in general need to up their privacy IQ s. In an information economy, privacy risks increase, says Hughes. It s one thing gauging each customer s or counterparty s individual privacy boundaries, but increasingly, there are legal and technical issues. Privacy risk isn t just in marketing and sales, it s also in production, R&D, HR it s an across the board challenge. Accordingly, a lot more people throughout a business need something of a privacy toolkit. Figure 9. How often? Steps B2C customers take to shield their online privacy How often? Always Usually Frequently Sometimes Rarely/Never Decline to provide info 12% 24% 30% 21% 13% Abort owing to too many questions 22% 16% 20% 29% 13% Delete cookies to hide 11% 17% 21% 20% 31% Use ad-blocker software 23% 20% 15% 11% 31% Copyright 2013 Forbes Insights 15

INSIGHT Five SELLER AND CUSTOMER PERCEPTIONS OF WHERE AND HOW ACTIONS ARE BEING OBSERVED DIFFER SIGNIFICANTLY Overall, the top locations for collecting customer data truly run the gamut across many customer touchpoints, including websites, call centers (think digitized content detection), in person and mobile devices. The top tools for data gathering include online cookies as well as pathing the active monitoring of how online visitors navigate the website (Figs. 10 and 11). This amounts to a considerable degree of time and resources devoted to collecting customer data. But at what point will consumers begin to believe they are being watched too closely? In seeking a balance, it will likely become important to do a better job at managing the perceptions of customers. B2C and B2B customer perceptions, when compared and contrasted to seller insights, show that customers vary between overstating and understating the actual depth to which their actions are being observed. Figure 10. Where do you collect customer data? Specifically, sellers report the percentage of companies who are actually observing specific interactions. Comparing this to the perceptions of B2C and B2B customers how often they feel they are being observed shows significant disconnects. For example, 53% of sellers say they actively observe that is, seek to obtain discrete customer data from in-person interactions. Here, both B2C (47%) and B2B (29%) customers underestimate the degree of observation. But turning to website visits, compared to reports from sellers, here B2C and B2B both overestimate the frequency with which their actions are being actively observed (Fig. 12). Indeed, this suggests that customers may not understand they re being tracked in person as much as they re being tracked online or that it s even possible to track in-person interactions to the degree that it is done. 65% 60% 53% 50% Website (86% among vanguard ) Call center In person (67% among healthcare, 64% vanguard ) Mobile (68% among very active, 66% manufacturing) 49% 46% 44% 44% Loyalty card (61% among manufacturing) Social media (61% among manufacturing) Direct mail Affinity programs (61% among manufacturing) 16 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

Figure 11. How do you collect data? Online tracking cookies 61% (88% retail) Website pathing 58% Loyalty and affinity programs 53% Unique coupon codes 43% (75% retail) Digital conversion of call center activity 38% Video cameras 36% Consumed audio and video content 35% RFID 32% Follow-on tracking 31% (cookies that follow site visitors) Cell phone 21% (33% manufacturing) Note: 82% are also taking steps to correlate in-house data with third-party data. The question for sellers is whether there is a need to do a better job of disclosing when and where they are observing customers. Customer perceptions may be off at the moment, but there is little evidence to suggest they truly mind enough to take action even when overestimating the degree of surveillance. Should one or more severe Figure 12. Are you being observed? commercial privacy breaches occur whether specifically at your company or within business in general such perceptions may begin to matter. Likely Highly likely In person Call center B2C 17% 30% 47% B2C 25% 34% 59% B2B 13% 16% 29% B2B 24% 15% 39% ACTUAL + 53% ACTUAL + 60% Website Direct mail B2C 18% 66% 84% B2C 22% 29% 51% B2B 23% 30% 53% B2B 17% 16% 33% ACTUAL + 65% ACTUAL + 44% Mobile B2C 17% 46% 63% Loyalty card B2C 16% 57% 73% B2B 17% 17% 34% B2B 19% 20% 39% ACTUAL + 50% ACTUAL + 49% Social media B2C 14% 53% 67% Affinity card B2C 18% 47% 65% B2B 19% 21% 40% B2B 14% 23% 37% ACTUAL + 46% ACTUAL + 44% + As reported by the main survey Copyright 2013 Forbes Insights 17

INSIGHT Six COMPANIES ARE WORKING HARD TO TRACK THEIR EFFORTS AND MOST SAY THEIR DATA PROGRAMS ARE PAYING OFF About four out of five executives say their efforts are meeting or exceeding ROI targets (Fig. 13). Meanwhile, only 11% say such efforts are falling short. In essence, sellers are saying that investment in collecting, mining and developing actions in response to customer data pays dividends. creating a more integrated cross-channel or single view of each customer (Fig. 15). Figure 14. Where are you obtaining benefit from customer data? Figure 13. Eighty-one percent of efforts are meeting or exceeding ROI targets 81% Product development 64% Fulfillment 48% Exceeding 34% Pricing 63% 34% Warranty, return, repair 11% Falling short Meeting 47% Website design and function Logistics 58% 35% As for how executives know how they re performing, 55% of sellers say they are actively tracking related metrics with 19% of these indicating such analysis is very rigorous. Executives further report that they are managing a wide mix of activity-specific metrics, process improvements (directly attributable to data efforts), directly observable customer metrics (such as retention rates or lifetime value) as well as intangibles (that is, customer satisfaction or improved R&D). In terms of where they are achieving specific benefits, companies say they are most successful in using data collection and analysis to assist with product development, pricing, website design and function, and call center operation (Fig. 14). But efforts are also under way to make improvements in a handful of key strategic initiatives. These latter include better informing media spending, informing marketing and Call center operations Mobile design and function 53% 41% design Retail location and signage Retail 41% 39% *Percentages equal the numbers of sellers who say they are proficient or very proficient in using customer data to inform, manage and improve each activity. 18 The Promise of Privacy: Respecting consumers limits while realizing the marketing benefits of Big Data

Figure 15. How far are you in your journey to use customer data to? Inform media spending Inform marketing Form a single view of customers Achieving significant success 64% 67% 88% Seeing business benefits 60% 87% 87% Off to a good start 57% 68% 86% See potential benefit but have yet to begin 53% 68% N/A Have no plans in mind 48% 71% 78% A good example of detailed performance evaluation comes from Zappos, a large online provider of apparel and footwear. According to Ronn Shaw, a web analytics manager, evaluation consists primarily of revenue projections, cost savings or incremental revenue gained by website tests. But much of the analysis is quantitative. Says Shaw, We know we are consistently making informed decisions based on data, and we have an idea of what we stand to gain or lose with every decision made. Essentially, each analysis we conduct, utilizing the data we collect, can be tied to some type of recommendation focused on improving the customer experience. Overall, says Shaw, the company s experience shows that improved customer experiences lead to added revenue generation. (See Q&A: How Zappos.com Stays in Touch With Customers.) All of this paints a picture of success: companies are actively measuring and seeing that they are benefitting from their data-driven strategies. It s no surprise, then, that the survey reveals an increase in related activity. Three out of five sellers (59%) say they plan to accelerate their efforts in these areas. The remaining two out of five say they re satisfied with leaving existing programs as they are neither expanding nor contracting them. In short, these initiatives work, and the future will see more, not fewer, data-driven customer strategies. Figure 16. Which of the following best describes your orientation toward gathering and analyzing customer data? 40% 1% 59% accelerate about the same slow down Copyright 2013 Forbes Insights 19